In their latest assessment, the brokerage firm has revised its target price for RIL stock, setting it at Rs 4,495 in the optimistic scenario and Rs 3,400 in the conservative scenario. This adjustment suggests a potential return of 17 percent based on the closing price recorded on March 26.
Reliance Industries witnessed a notable surge of over 3 percent in its shares on March 27, following Goldman Sachs’ reaffirmation of a ‘buy’ rating on Reliance Industries Ltd. The investment bank foresees a remarkable 54 percent upside potential by FY26 in its optimistic scenario, citing favorable risk-reward dynamics, value realization from its Disney joint venture, and improved return on capital investments.
Goldman Sachs analysts highlighted that with the capex cycle in two capital-intensive sectors, retail and Jio Telecom, nearing its peak, Reliance Industries is poised to witness enhanced overall performance.
Furthermore, the brokerage revised its target price for RIL stock, setting it at Rs 4,495 in the bullish scenario and Rs 3,400 in the base case. This adjustment suggests a potential return of 17 percent from the previous closing price.
Goldman Sachs emphasized that Reliance Industries shares typically outperform the Indian market when returns expand and valuation discovery occurs through stake sales in newer ventures. The note added, “Over the last two years, both these drivers were largely absent, potentially driving the shares’ underperformance. We expect rising returns ahead, which could compound with further potential value unlock through potential listings of consumer businesses.”
RIL Positioned for Long-term Growth as Goldman Sachs Predicts Expansion in Returns
According to analysts at Goldman Sachs, Reliance Industries Limited (RIL) is on the cusp of a significant long-term growth phase, with consolidated returns reaching a pivotal juncture in FY24. Forecasts indicate that RIL’s Cash Return on Cash Invested (CROCI) is slated to expand by approximately 270 basis points, reaching 12 percent by FY27, marking the highest level since 2011.
Goldman Sachs emphasized that RIL is gradually emerging from a prolonged series of extensive capex cycles. Over the past decade, RIL has allocated over $125 billion to capex, primarily in the hydrocarbon and telecom sectors, which typically entail substantial investments and longer gestation periods exceeding five years.
The brokerage firm highlighted RIL’s strategic shift towards investments in businesses with comparatively lighter capex requirements, higher returns, and shorter gestation periods over the next three years. This strategic pivot positions RIL for sustained growth and value creation in the longer term.
Reliance Industries’ Earnings Profile Poised for Robust Growth, Anticipates Goldman Sachs
Goldman Sachs foresees a substantial strengthening of Reliance Retail’s earnings before interest, tax, depreciation, and amortization (EBITDA), nearly doubling over the period spanning FY24-27. During this timeframe, the consolidated EBITDA share is projected to ascend to 14.3 percent by FY27 from its FY23 level of 12.4 percent. Furthermore, for the emerging new energy vertical, the brokerage expects a positive EBITDA contribution to commence by FY25, eventually reaching $2.3 billion by FY30.
The outlook on RIL’s consolidated free cash flow, which has historically remained negative due to heightened capital expenditure, is set to turn positive in FY25, coinciding with the anticipated peak in capex. Additionally, EBITDA is forecasted to expand by 20 percent year-on-year, driven by factors such as a telecom tariff hike, heightened retail same-store sales growth, and a recovery in chemical margins.
An impressive annual increase of 17 percent in EBITDA between FY24 and FY27 is envisaged, chiefly fueled by the nearly twofold increase in Retail EBITDA over this period, alongside a robust 22 percent annual EBITDA growth in the telecom segment, buoyed by an upsurge in telecom Average Revenue Per User (ARPU).
Goldman Sachs identifies several catalysts underpinning this growth trajectory, including the ongoing transition of consumers to smartphones, robust growth in fixed broadband penetration, recovery in petrochemical margins driven by global demand dynamics and lower feedstock prices, sustained robustness in diesel cracks owing to constrained global spare capacity, and initiatives aimed at reducing operational expenditure.
Year-to-date, RIL shares have recorded an impressive rally of 11.5 percent, outperforming the benchmark Nifty 50 index, which has registered a more modest increase of just over 1 percent during the same period.
Sources: moneycontrol.com
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